FDI hint brings global retail giants to India gate

Chaitali Chakravarty & James Mathew, TNNNov 27, 2004, 02.00am IST

NEW DELHI: There is a flurry of activity on the retail counters. Industry and commerce minister Kamal Nath's plan to allow FDI in 'select' branded and dedicated retail segments is expected to revive proposals that were gathering dust due to government's unwillingness to allow foreign investment in this sector.

It may still be a long way to opening shutters, but industry insiders say that global majors' antennae have pricked up at the hint of a change in government policy on retail.

Starbucks tops the big-brand list which is expected to approach the government in the near future for entry into India. Besides Starbucks, clothing chains GAP, Zara and H&M are also expected to set up shops in India, Retail consultants say.

These three brands have made it amply clear that they are not interested in entering the country through the licensing route. GAP already has a sourcing base in India and knows the market well.

The world's largest gourmet coffee chain could have set up shop in India through the licensing route, as Marks and Spencer, Pizza Hut and Costa Coffee have done. But it preferred to wait for the government to open up the sector to foreign investment, sources said. This is largely due to its international policy of entering new markets through joint ventures.

According to industry sources, Starbucks usually tests the performance of potential local partners before finalising JVs. Its officials have visited India too, but have returned unconvinced. Hence, it is not known if it will follow a similar business model in India. As the company has lost the first-mover advantage, it may want to come on its own. Home-grown Barista and Cafe Coffee Day have established themselves in India.

UK's Costa Coffee is also getting into this business through a licensing agreement with the Jaipuria group.

Martin Coles, president of Starbucks (Research) Coffee International, however, is unfazed by competition. He was quoted in a financial website early this month as saying, "India is an important long-term growth opportunity in the Asia Pacific region...We're looking at our own strategy... We believe there is a growing affinity for global brands, particularly among the middle class."

Other Starbucks executives are also bullish on India. Christine Day, president of Starbucks Asia Pacific Group, was quoted as saying, "India is a tea-based culture. We're not saying coffee is a substitute. We're saying Starbucks is a place to hang out, to eat and drink, to see and be seen."